An industrial state has been generating increasing amounts of hazardous waste and is considering construction of a waste treatment facility. The key question is where to site it. The attitude of most cities and towns toward the facility is "Not in my backyard!" Under state law, towns have the absolute right to refuse such a facility. The state is encouraging private waste disposal companies to negotiate with towns that might be willing to accept the facility. The table summarizes annual benefits and costs (in millions of dollars) associated with the five leading sites. Only one site will be chosen for the facility. Note that the state's industries as a whole will benefit from having an in-state facility. In addition, the sites offer the developer potential profits, but will generate substantial costs for the host towns.
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Site
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|
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Affected Groups
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A
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B
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C
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D
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E
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State Industry Developer's:
Revenue
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4
12
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4
12
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3
12
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2
12
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3
12
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|
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Cost
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-6
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-9
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-7
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-7
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-8
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|
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Host Town's Cost
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-7
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-5
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-4
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-8
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-2
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a. What is the developer's most profitable site? Suppose the developer negotiates with a number of towns. At which site would you predict the final agreement to be reached? Does this site generate maximum net benefits?
b. Suppose only sites A, B, and D are feasible. Is a negotiated agreement between the developer and the town possible? According to the benefit-cost standard, where should the facility be located? How could this outcome be implemented? Explain.